Accounts Opening A Brokerage Account
When you open a brokerage account, you must sign a new account agreement. You should carefully review all the information in this agreement because it determines your legal rights regarding your account.
Do not sign the new account agreement unless you thoroughly understand it and agree with the terms and conditions it imposes on you. Do not rely on statements about your account that are not in this agreement.
Ask for a copy of any account documentation prepared for you by your broker.
The broker should ask you about your investment goals and personal financial situation, including your income, net worth, and investment experience, and how much risk you are willing to take on. Be honest. The broker relies on this information to determine which investments to recommend to you. If a broker tries to sell you an investment before asking you these questions, that's a very bad sign. It signals that the broker has a greater interest in earning a commission than determining whether the investment is consistent with your investment goals and tolerance for risk.
The new account agreement requires that you make three critical decisions:
Be wary of buying stocks on margin. Make sure you understand how a margin account works, and what happens in the worst case scenario before you agree to buy on margin. Unlike other loans, like for a car or a home, that allow you to pay back a fixed amount every month, when you buy stocks on margin you can be faced with paying back the entire margin loan all at once if the price of the stock drops suddenly and dramatically. The firm has the authority to immediately sell any security in your account, without notice to you, to cover any shortfall resulting from a decline in the value of your securities. You may owe a substantial amount of money even after your securities are sold. The margin account agreement generally provides that the securities in your margin account may be lent out by the brokerage firm at any time without notice or compensation to you. The firm's lending of securities does not affect the value of your account.
When opening a new account, the brokerage firm may ask you to sign a legally binding contract to arbitrate any future dispute between you and the firm or your sales representative. Signing this agreement means that you give up the right to sue the firm or your sales representative in court. For additional information, read Holding Your Securities — Get the Facts.
You may have your securities registered either in your name or in the name of your brokerage firm.
For more information that will help you select a brokerage firm and sales representative, read our brochure, Invest Wisely: Advice From Your Securities Industry Regulators.http://www.sec.gov/answers/openaccount.htm